Costs of the Foreign Office

If the Foreign Office deserves sympathy over sterling, it must take tighter
control of its budget.

The Commons foreign affairs select committee is right to demand that the Treasury meet additional costs to the Foreign Office caused by the chronic weakness of the pound. In a world of floating currencies, it is only sensible to have a system which automatically adjusts to fluctuations. Britain had one, the Overseas Pricing Mechanism (OPM), until the Treasury withdrew support for it. The result, according to the committee's report published yesterday, is that the diplomatic service faces an annual shortfall of £3m this year and next, with likely increases in subscriptions to the United Nations and other international bodies pushing it still higher. For a department which by its nature has considerable foreign currency costs, the answer is to restore the OPM or create an equivalent. Otherwise, each year will see a time-wasting haggle between the two sides of King Charles Street.

While pleading the Foreign Office case over sterling, the committee also has criticisms of the way the department works. The most prominent example is that of the British ambassador's residence in Dublin, Marlay Grange, bought in 2000 for more than £6m. Renovation costs turned out to be much higher than estimated, and the property was sold last year for about £210,000 above the purchase price. Taking into account the running costs in the intervening period, the loss to the Foreign Office was nearly £1.4 million, and the ambassador is now without a permanent residence. The style in which our top diplomatic representatives live is a sensitive one with the British taxpayer. The Dublin muddle has come about through poor management: there was no thorough survey of Marlay Grange until it had been bought. If the Foreign Office deserves sympathy over sterling, the quid pro quo must be tighter control of its budget.